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Original poster

Using savings intended for the DC to buy an investment property

45 replies

moneyadv · 13/02/2023 06:16

Just thoughts on the title really.

30k in cash savings, interest rates seem rubbish so thinking of buying a rental property as an investment for them.

How does one go about doing this?

We have a home with a mortgage. Dh has a regular job, i am self employed (if that makes any difference)

OP posts:
peeweechigs · 13/02/2023 06:59

What would you be able to buy for £30k?!

confusedlots · 13/02/2023 07:03

Presumably you're going to need a mortgage? With current interest rates, it really makes no sense to buy a rental property at the minute if you need a decent mortgage. Have you done the sums to see if you'd even make any money on it?

Shamoo · 13/02/2023 07:06

If you buy it in their name they will lose any stamp duty benefits of being first time buyers when they are older (and potentially have to pay secondary stamp duty too). Just have that in mind.

PinkFrogss · 13/02/2023 07:19

Depending on where you live, you may need a much bigger deposit for a buy to let.

Could you afford for the house to sit empty for a couple of months, or for a tenant to not pay? Do you understand what your legal obligations as a landlord would be? Do you think it’s a moral choice?

If you had to evict a tenant, if they are unable to afford a new rental property they are usually advised to remain in the property until forcibly removed by court action. This can take months.

There is alot of future legislation planned and talked about, such as the new EPC rules, which could cost landlords a lot of money in actually making their property suitable to live in.

Remember, housing is like any other investment - I see a lot of landlords upset at the idea of not making a profit on their buy to let’s, but they’re not owed profit anymore than someone who has put the amount in stocks and shares is.

PinkFrogss · 13/02/2023 07:20

Also worth considering that if you got divorced the house would be a martial asset and would be split with your husband, so if there are any profits it may not all end up going to your kids either.

rookiemere · 13/02/2023 07:23

Have you looked at all the children's accounts that are available? Thought about a stocks and shares ISA?

I don't think BTL is the great money maker it used to be, particularly if you can only put in a small deposit. Also unless you want to use a rental agency that typically cost 10-15% of the monthly rental, it will be time heavy to source people to rent it and maintain appliances etc. etc.

transformandriseup · 13/02/2023 07:25

Savings rates aren't that bad at the moment, you can fix for a year at over 4%.

Sunbird24 · 13/02/2023 07:26

I wouldn’t, and that’s speaking as a single-property landlord with no mortgage. Even just the tax return is a pain, never mind everything else

ArcticSkewer · 13/02/2023 07:41

Just as buy to let owners everywhere are selling up and the housing market is falling.
You may be better off sticking with cash savings right now!

Others have pointed out other pitfalls. Personally I wouldn't do it, not with just £30k, but as an ethical decision I wouldn't have a problem with it.

isthewashingdryyet · 13/02/2023 07:45

Try investment Isas or a Pension for them. Much better idea than a house yo7 can’t actually afford to t9 buy outright and has all the the disadvantages listed by all the PP

SheilaFentiman · 13/02/2023 07:46

I wouldn’t do it with that amount of money.

You can start pensions for them, or junior ISAs

Original poster
moneyadv · 13/02/2023 08:02

Thank you for the replies so far.

Yes plan is to get a buy to let mortgage. They seems to be 25% deposits so Probably a flat to start with.

Our home mortgage will be paid within 5 years.

Pensions I'm not keen on. I want something they can use/sell to pay to start up their lives - uni and first homes

OP posts:
Nimbostratus100 · 13/02/2023 08:04

be very careful, friends have lost far more than 30k trying this, in capital gains tax, in some sort of second home tax, in legal cost, in management fees, in all sorts of pitfalls

Original poster
moneyadv · 13/02/2023 08:04

Shamoo · 13/02/2023 07:06

If you buy it in their name they will lose any stamp duty benefits of being first time buyers when they are older (and potentially have to pay secondary stamp duty too). Just have that in mind.

Thank you I hadn't thought of that. We were planning to seek financial advice about who's name it would go in. I suspected mine would be better due to being a lower rate tax payer (I'm very part time/self employed/spend lots of time as a sahm)

OP posts:
PinkFrogss · 13/02/2023 08:08

moneyadv · 13/02/2023 08:02

Thank you for the replies so far.

Yes plan is to get a buy to let mortgage. They seems to be 25% deposits so Probably a flat to start with.

Our home mortgage will be paid within 5 years.

Pensions I'm not keen on. I want something they can use/sell to pay to start up their lives - uni and first homes

Put it in an ISA and use some of the money you’re spending on a mortgage towards savings once it’s paid off, then you’ll have hassle free secure savings for as soon as you or them need it.

LadyLapsang · 13/02/2023 08:15

Did you save the money from your income or does it come from other people such as grandparents? If the latter, I would check with the person that gave the children the money.

Sarahcoggles · 13/02/2023 08:22

There are cash ISAs that pay nearly 4% tax free interest available at the moment. The rate is high because you can't withdraw the money (without a financial penalty) for 2 years, and the rate is fixed, so can't be lowered even if interest rates go down. You can put in up to £20,000 in each tax year. So if you opened one now, you could put £20k in, then in April you could put in the remaining £10. I'd have thought that would be better than paying 7% interest on a mortgage, as well as all the costs of buying, and the hassle of letting.

Original poster
moneyadv · 13/02/2023 08:26

No it's our money and we save quickly. We've just spent more than this on a house extension and increased the value of our lovely home.
I said 30k because I'd like a nice holiday this year and I'm still on mat leave so I don't expect it to grow over the next 12 months.

DH and I have never had money from family (although they are great and offer sometimes), we are quite pig headed about it.

We always overpay on our mortgage the maximum allowed. I don't really want the money languishing in a isa but maybe that is the best option. Confused

I think I like the idea of a side hustle. Surely buying when the market is down is a good strategy..?

Thanks all for the replies :)

OP posts:
loveisagirlnameddaisy · 13/02/2023 08:43

Landlording is the most challenging it's ever been. Landlords are selling up like never before. All UK governments have been introducing stricter and stricter legislation in the last decade, it is now very easy to get something wrong and be left with tenants you can't evict. Eviction legislation is due to change so it will be far less likely that you will be able to ask a tenant to leave just because you want the house back.

Do the maths. Flats have a ceiling rental price lower than houses and additional costs (service charges) which houses don't have so your return may be quite low.

Sarahcoggles · 13/02/2023 08:47

I certainly wouldn't risk being a landlord. In the current climate I think there's a strong chance of tenants struggling with rent and not paying it. You only need that for a short time for it so negate any profit you might make.

Original poster
moneyadv · 13/02/2023 08:49

loveisagirlnameddaisy · 13/02/2023 08:43

Landlording is the most challenging it's ever been. Landlords are selling up like never before. All UK governments have been introducing stricter and stricter legislation in the last decade, it is now very easy to get something wrong and be left with tenants you can't evict. Eviction legislation is due to change so it will be far less likely that you will be able to ask a tenant to leave just because you want the house back.

Do the maths. Flats have a ceiling rental price lower than houses and additional costs (service charges) which houses don't have so your return may be quite low.

Thank you this is useful.

Would you say continue to save and go for a holiday home instead?

I'm more interested in the additional asset than an extra income I think 🤔

OP posts:
JustGotToKeepOnKeepingOn · 13/02/2023 08:53

Buy to let mortgage rates are going scarily high... definitely don't do it!

A lot of people think it's a good way to make money. It's really not. Invest your money elsewhere. £30k isn't anywhere near enough to be going into a housing venture. You only need one tenant to trash the place or the boiler to break down just when your car needs to go in for a service and the whole lot comes tumbling down.

I'd be amazed if a financial advisor tells you it's a good idea right now.

SheilaFentiman · 13/02/2023 09:00

Your money doesn’t have to languish in an isa, you can manage it actively, if you like.

you cannot afford a buy to let or a holiday home outright with that amount of money. Holiday home will have maintenance issues as well.

if you want a holiday home for yourselves, great, but don’t do it primarily as an investment

maxelly · 13/02/2023 09:12

I don't understand your comment about 'languishing' in an ISA, have you not heard of compound interest? In an account paying 4% (which is available on the market ATM albeit fixed for a year, you would have to shop around again to find the same or a better rate next year), if you left the money untouched for 15 years you would earn £25k in interest, nearly doubling the money for your kids, with little to no effect from you, hardly 'languishing'. You say interest rates are rubbish ATM, it depends on your perspective, they're actually much higher right now than they have been for years (a bad thing for the economy overall), this makes it actually a relatively bad time to take on additional mortgage borrowing and a good time for saving.

Buy to let property might become a good idea again in a few years when interest rates have hopefully lowered, but you'll need to keep an eye on the government's regulations/requirements for landlords which it looks like may increase significantly (a good thing for tenants but will eat a long way into small landlords' profit margins) and I would say still only worthwhile in an area with high capital growth on an asset you intend to keep long term (like, 15 years ++) , and you'll still need to do some serious sums about how much short term risk you're prepared to take on of major repair bills, tenants refusing to pay bills, long void periods etc, which if you are already tight on paying a 75% mortgage and agents fees etc then could end up costing you quite a lot...

maxelly · 13/02/2023 09:15

Meant to say also that a stocks and shares ISA (a managed one where an expert picks the investments for you, not a self invested one) can often significantly outperform the interest rates you'd earn on a cash ISA or even a fixed rate from your standard high street bank. Look at Hargreaves Lansdown, nutmeg, vanguard, wealthify etc...